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Research Report

22/09/2020 17:12

HK banks to benefit from financial connectivity within GBA

[ET Net News Agency, 22 September 2020] Moody's Investors Service said in a new report
that the gradual liberalization of financial services between the 11 regional and city
governments in the Greater Bay Area will create opportunities for Hong Kong (Aa3 stable)
banks to offer more services in mainland China (A1 stable), especially in wealth
management and lending.
"In addition to Hong Kong banks' traditional role in providing loans to mainland
companies and loans for use in mainland China, we expect the further development of the
Greater Bay Area will help drive new business growth over the next 1-2 years," said Winnie
Tang, a Moody's Analyst.
Seven rated banks are already represented in each of the 11 Greater Bay Area regions
through bank outlets, subsidiaries or affiliates under their parent groups. Increased
involvement in the area suggests that Hong Kong banks will come to a turning point in
their mainland China exposures both in terms of the quality and quantity of their
"In the nearer term, we expect to see moderate growth in Hong Kong banks' traditional
mainland businesses, reflecting weakness in cross-border activity and corporate credit
demand amid economic recovery and ongoing US-China trade tensions," added Tang.
Asset risk is rising for the banks' mainland exposures, although at a slower rate than
for the overall mainland banking system. This is because Hong Kong banks tend to service
large corporate customers that have better credit fundamentals and potential parental
As banks continue to grow their mainland businesses, the capital strain will vary. Loan
growth is outpacing internal capital generation for some banks, pointing to potential
capital strain.
The Outline Development Plan for the Greater Bay Area, published by the Hong Kong SAR
government in February 2019, has the objective of transforming the area into a major
region of economic development, technological innovation and infrastructural connectivity
by 2035. Under the plan, regulators earlier this year launched the Wealth Management
Connect Scheme allowing residents in the area to invest in eligible wealth management
products distributed by banks in Hong Kong and Macao (Aa3 stable) and for residents of the
two SARs to invest in eligible products. (KL)

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